IBM Channel Finance Builds Blockchain App to Improve Working Capital

How can companies find ways to get early success with blockchain? One suggestion is to look internally.

IBM has a channel finance business called IBM Global Finance financing somewhere north of $44bn in computer equipment. They have distributors that sell this equipment and this finance allows those distributors to get inventory before they need to pay for it.

IBM’s own analysis shows they process 2.9 million invoices but have 25,000 disputes. A dispute could be because some distributor is refusing to pay an invoice due to the wrong quantity delivered, a wrong tax rate applied, a different price than contract, etc.

IBM built a blockchain application to resolve this dispute resolution process much quicker. Why? Simply working capital.

IBM was able to combine the data of their suppliers and partners and build a workflow of every single step of the dispute process. They built a shadow chain, so they did not have to replace core systems of IBM or their partners. By creating a shared ledger for each step, all the parties maintained their data on the chain and it is validated by relevant parties.

On average there is $100M tied up in disputes every day. IBM believes they will achieve a reduction in working capital that is tied up by reducing dispute time from an average of 40 days to a few days which will release upwards of $50M in capital.

This is a very simple solution that did not require any disruption of current systems. What was required was putting in place a definitive agreed record of everything that happened on the process steps.

The goal is for suppliers to opt-in to use it to efficiently resolve discrepancies. The idea is every transaction will be automated to be populated on the blockchain, and for any dispute, the blockchain would be the source of truth.

There are a lot of blockchain Proof of Concepts and they only go so far. Smart thinking around blockchain is we have done enough POCs, lets pick a use case where you can reduce risk or create new markets.

Again, I get back to the incentives required in the ecosystem to make these applications work – see Everything Blockchain